ABI September 2017: Firms see modest slowdown in billings

Firms in the South most likely to have already seen impacts from recent hurricanes

Business conditions at architecture firms softened modestly in September, as AIA’s Architecture Billings Index (ABI) score declined to 49.1. Billings have been growing at a strong pace in recent months, so it is too early to determine whether this is a new trend or just a modest course correction. In addition, per the results from this month’s special topical question to survey panelists regarding the impact of hurricanes on their business, while some firms have seen an impact on their projects it is generally too early to have seen much of an effect on billings.

Inquiries into new projects and the value of new design contracts continued to increase, although slightly fewer firms reported an increase in September than in August. Backlogs at architecture firms also remained essentially unchanged from the second quarter to the third quarter, at 5.8 months, on average.

Business conditions softened at architecture firms located in the West in September, although growth remained strong at firms located in the Northeast and South, and were flat at firms located in the Midwest. Billings also remained relatively strong at firms of all specializations this month, although the pace of growth slowed modestly at firms with residential and commercial/industrial specializations.

The general economy showed more signs of the impact of the hurricanes in September, with nonfarm payroll employment posting its first monthly decline in seven years. However, the decline was generally modest (33,000 positions), and largely in industries that were directly impacted by shutdowns related to the storms (food service and drinking places). Architectural services employment figures are always released one month after national employment numbers, and were essentially flat from July to August, with a modest decline of 700 positions. In total, architectural services employment has still added more than 8,000 positions in the last 12 months.

New residential construction also declined modestly in September, with housing starts declining by 4.7 percent from August and building permits for new privately-owned housing units falling by 4.5 percent. However, housing starts remain 6.1 percent higher than they were one year ago, a generally positive sign for future growth.

Did the hurricanes impact business?

This month’s special topical questions asked survey respondents about impacts they have seen so far from the recent hurricanes, as well as steps taken in recent years by their cities and communities to mitigate the impact of natural disasters or to improve local resiliency. Three quarters of responding architecture firms indicated that so far either they have not seen any impacts to their projects from the hurricanes (49 percent of respondents) or that they are not sure or it is too early to tell (26 percent of respondents).

Slightly more than one in ten responding firms (12 percent) indicated that they have seen higher construction materials prices from companies impacted by the hurricane, 8 percent have seen higher energy prices due to refineries affected by the hurricanes, 7 percent have seen labor shortages due to increased demand from areas affected by the hurricanes, and 6 percent have seen construction material shortages due to increased demand from areas affected by the hurricanes. Just 5 percent of firms nationally reported that they have projects that have been delayed or cancelled due to the hurricanes, although this rises to 12 percent of firms located in the South.

Of firms aware of steps taken by their local city/community to mitigate the impact of natural disasters or to improve the resiliency of their local area, 47 percent indicate that their city/community has taken such steps. This share is highest for firms located in the South (56 percent), followed by those located in the West (48 percent) and Northeast (46 percent). Just 35 percent of firms in the Midwest indicate that their cities/communities have taken such steps.

This month, Work-on-the-Boards participants are saying:

"We have had a couple of major and minor projects put on hold because of rising construction costs and labor shortages. There projects are no longer within the proforma of the original budgets and the clients have opted to put them on hold indefinitely." —22-person firm in the West, institutional specialization

"Houston is still chugging along despite the lackluster performance in the oil and gas sector and the loss of a week or so of productivity due to the flooding caused by Hurricane Harvey." —52-person firm in the South, commercial/industrial specialization

"We see ongoing construction around us, but have seen a slight slowdown in new projects." —12-person firm in the Northeast, residential specialization

"Still booming design and construction marketplace, however, more and more people are wondering how long this can possibly last. Multifamily development has peaked and is starting to taper, other sectors are steady but not booming." —7-person firm in the Midwest, commercial/industrial specialization